How to Support Your Favorite Charities in Your Estate Plan

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Lauren Pitman

Author, Attorney

I’ve watched in awe this year as my favorite non-profits have had to reconsider and adapt to the difficulties of canceling in-person events, including their biggest fundraising events of the year. Though revenues have decreased, community needs are higher than ever under the challenges of the pandemic, and charities need our help.

We’re all being asked to reconsider our values this holiday season: if we can’t be gathered together in a single room, what can we do instead? One of the ways we can create the spirit of generosity of the holidays is through charitable giving.

Many people believe giving to charity is only for those with deep pockets, but charitable giving is accessible to anyone with an estate plan, and when someone comes to my office to make a plan, I encourage them to think about including their favorite charities in a variety of ways.

In addition to being able to make a gift toward a cause you care about, contributions to charities can have significant income and estate tax benefits. Gifts to charities reduce your estate tax size for the purposes of calculating a state or federal estate tax. Charitable contributions can have lifetime income tax benefits for you and, with proper planning, can have income tax benefits for your heirs after you pass away.

Here are some ways to make it clear what you care about, and continue to benefit your favorite non-profits in the future:

Ask for donations in your memorial plans. Planning your own funeral isn’t for everyone, but for those who like to think ahead, including a call for donations in your memorial plan is a simple solution for benefitting your favorite charity without spending a penny.

You have often seen “in lieu of flowers” at the end of an obituary, perhaps to benefit the Alzheimer’s Association or a hospice organization. You can request in writing your memorial plans that your Personal Representative (or another person close to you, as this isn’t an official duty), include your favorite non-profit in your obituary.

Without making a plan, your heirs might choose a different charity that isn’t as high on your list. It’s important to express these wishes and the non-profit benefits with no cost to your estate.

Consider the charity in your Will or Trust. The easiest way to ensure that assets transfer to your favorite charity or charities upon your death is to include that charity in your estate plan by naming them as a beneficiary. You can give the charity a specific dollar amount or direct that a certain percentage of your estate pass to the charity.

Additionally, can usually direct how your funds are to be spent. If you plan to leave anything other than money to the charity, you will want to check with them to confirm they will accept the item or items. This information, as well as specific bequest language, can usually be found on the charity’s website or by asking them directly.

Include a contingent remainder in your Will or Trust. You may want your assets to pass to your heirs, as expressed in your will. Still, you should have a contingency plan, if all your heirs were to pass away before you. This might be a remote possibility, but it is always a possibility.

Without a contingent remainder in your plan, the court would look for your closest kin to distribute your assets. Some of these assets are never claimed. You can avoid this situation if you have already named the non-profits you care about most in your will.

The contingent remainder only comes into effect if none of the people you’ve chosen to inherit are still alive, so it won’t affect your beneficiaries. This is another way to express your values without necessarily costing your estate money.

Name the charity as a beneficiary on your retirement plan. Naming a charity as a beneficiary on your retirement plan not only allows the gift to happen quickly but also has an estate and income tax benefits. Distribution of qualified retirement accounts (pre-tax dollar accounts like 401Ks and traditional IRAs) to individuals will result in that individual having to pay income taxes for the gift. (See my post about the SECURE ACT for more information).

Charities, however, are exempt from paying income taxes on retirement funds. The result is that the charity receives the funds without an income tax obligation leaving more tax-free money for your heirs. To name a charity as the beneficiary (or one of the beneficiaries) on your retirement account, you simply include the entity on the beneficiary designation form provided by the asset holder of your funds. Changing either the amount or the charity is as easy as signing and send off a new form, so it doesn’t require any changes to your other estate planning documents.

Donor-advised funds. Contributions to a donor-advised fund is another way to give charity money as part of your estate. A donor-advised fund allows you to make a gift to an account or other contribution of an asset. This fund is often managed by the charity directly although some large financial institutions also manage charitable funds. Once the fund is created, you can direct which nonprofit you wish to donate to.

Build layers into your estate plan. If you’re concerned about providing for your heirs, you might not want to specify an amount of money for a charity in your estate plan. What you can do, instead, is to create a series of layers with different amounts designated to the charity.

An attorney and financial planner or accountant can work together to decide what amounts are appropriate based on the tax laws of your state. This can save money with tax planning, as well.

Contact your local community foundation. I often stress to my clients that keeping dollars in the local economy is a great way to have a bigger impact. You may have a nationwide or even international non-profit whose cause is dear to your heart, and those connections are important, but then it takes a larger donation to have an impact.

In your local economy, even a small donation can make a difference to an organization. There are community foundations that help philanthropists (and aspiring philanthropists) designate the right causes and the right amount of money to have an impact. Depending on the size of the non-profit, your dollars can go further and help people who are closer to home.
Don’t be intimidated by the idea of charitable giving as part of your estate plan. It doesn’t take deep pockets to make a difference when you’ve given it a little thought. Together, we can make sure our favorite non-profits make it through this difficult year and are still benefitting the populations they serve for years to come.

Learn more about Side by Side Planner and it’s many benefits here.

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Disclaimer: The information contained in this article should not be considered tax or legal advice and is not a substitute for such advice. State and federal laws change frequently and the information in this article may not reflect your own state's laws or the most recent changes in state or federal law. For current tax and legal advice, please consult with an accountant or attorney licensed to practice in your state.
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